Are you struggling to deal with overwhelming debt? Rest assured, you’re definitely not alone. In fact, a recent report shows that Canadians now carry the biggest debt-to-income load, with the average Canadian owing $171 for every $100 dollars of disposable income. This is significantly higher than even one year ago, and it means debt loads are a big deal for Canadian families, and our economy.
With recent increases in interest rates, and possible future increases predicted, many families will be feeling financially challenged and unsure how to deal with their debt load. For those who are completely unable to repay their loans, bankruptcy is a possible option. However, filing for bankruptcy is a complicated process, and means that you can lose some of your personal and financial assets; certainly not a decision that you can ever make lightly.
Bankruptcy and your home
Filing for bankruptcy does not mean losing everything you own, however. In fact, some of your assets, such as your vehicle and clothing are protected up to a certain monetary amount. People still need to work, so taking away the transportation and clothing would not be a logical solution. Your house, on the other hand may or may not be protected, depending on how much equity you have in your home.
Equity is the amount of your home that you actually own, or have paid off. You can determine the amount of equity you have in your home by subtracting the amount you still owe on your home from the amount of your property’s market value. If you have $10,000 or less in home equity, you are able to keep your home, however, if you have more than $10,000 in equity, your home could be subject to seizure and sale.
Depending on market conditions, the equity in your home may increase or decrease depending on whether home values are currently on the upswing or are experiencing a downturn. For example, recent decreases in home values in the Simcoe County region may mean that you now have less equity in your home than before when homes values were higher.
For those with quite a bit of equity in their home, bankruptcy might not be the best alternative to tackle consumer debt. There are other available options to reduce the debt you owe without having to resort to declaring bankruptcy.
Consumer proposals, for example, is one option to avoid bankruptcy and still deal with debt. A consumer proposal involves creating an agreement with your creditors to repay a portion of your loan over an extended time frame.
You can also use the equity in your home to repay the debts you owe. By using a home equity loan, you can consolidate multiple, higher interest debts into your mortgage. This is beneficial because it means that you will save money on interest payments, and can use this money saved to possibly even repay the loan more quickly. Since mortgage interest rates are typically much lower than credit card interest rates, it’s advisable to transfer those debts into your mortgage whenever possible to avoid paying any extra interest than is absolutely necessary.
When it comes to dealing with debt effectively, it’s not always clear which strategy is best. One thing is for sure, ignoring your debt won’t make it go away. If you’d like to explore the option of using the equity in your home to repay, or pay down the debts you owe, contact me at 705-315-0516 to set up an appointment. As an experienced mortgage broker, I’m here to talk to you and help you better understand the various options that are available to you.